What are the key points in Mike Michalowicz’s Fix This Next book? How does Michalowicz explain business needs?
In Fix This Next, Mike Michalowicz introduces the Business Hierarchy of Needs, a take on Maslow’s Hierarchy of Needs applied to business. The ideas in Fix This Next provide a foundation for business owners to understand how to manage their companies.
Read more for an overview of Fix This Next, including a detailed explanation of the Business Hierarchy of Needs.
About Fix This Next
In his Fix This Next book, entrepreneur and business author Mike Michalowicz introduces the Business Hierarchy of Needs, a system for determining which of your company’s problems you should fix next. Michalowicz created this system because many entrepreneurs struggle with prioritization. They’re often overwhelmed by problems, so they focus on fixing the most immediate problem instead of identifying the most impactful approach that’ll fix the problem’s root cause. Since the root cause isn’t resolved, problems continue to appear.
Michalowicz says that as a young entrepreneur, he struggled to prioritize the most impactful approach for his company. This experience inspired him to create a structured prioritization system, which he shares in Fix This Next to help other entrepreneurs succeed more easily than he did. This system also draws on his later experiences as a business author and founder of four multimillion-dollar companies. Michalowicz has written several other books on profitability, as well. For instance, in Clockwork, he discusses how to prioritize tasks; and in Profit First, he explores prioritization in business accounting.
How Michalowicz’s System Works
Michalowicz’s system helps you prioritize solutions for your company’s problems by identifying its most crucial requirement—or vital need, as he calls it. This is whichever essential function will cause the most damage to your company if it isn’t fulfilled. Framed positively, fulfilling this requirement will bring the most benefit to your company—it’s the most impactful approach. For example, if your business is failing because you’re not making enough sales, your crucial requirement may be attracting and converting customers.
The Structure of Michalowicz’s Prioritization System
Michalowicz’s prioritization system groups a company’s requirements into five tiers: sales, profit, structure, influence, and self-perpetuation, with sales being the lowest tier and self-perpetuation being the highest. These tiers are arranged in order of importance, with the requirements that are most essential to your company’s survival on the lowest tier. Thus, you must fulfill the more essential, lower-tier requirements before moving to higher tiers. This structure is based on Maslow’s Hierarchy of Needs, a psychological theory that states people can’t effectively fulfill some higher-tier requirements (like forming strong relationships) before they’ve fulfilled other, more essential lower-tier requirements (like food).
The Tiers of Michalowicz’s System
Now that we’ve covered using Michalowicz’s system to identify your company’s crucial requirement, we’ll further discuss what these requirements are and how to fulfill them. In each following section, we’ll cover one tier, first addressing how completing a tier (by fulfilling all the requirements within it) helps your company, then discussing how to fulfill said requirements.
Tier #1: Survive Through Sales
The first tier of Michalowicz’s system is helping your business survive through sales. Michalowicz defines sales as making and upholding deals with customers. By completing this tier, you ensure your company consistently earns enough revenue to remain in business.
Here, we’ll highlight three requirements that make up this tier and give your company a solid foundation to grow on:
Requirement #1: Support Your Personal Financial Comfort
Make enough sales to support your personal financial comfort. Michalowicz describes this as having a large enough salary to maintain your current lifestyle, pay off debt, and put aside savings. However, this salary doesn’t include luxury or business expenses. Having personal financial comfort as a sales goal can increase your motivation and happiness: You’ll work harder to meet your sales goals because doing so improves your quality of life, and you’ll be happier because you’re focusing on creating a company that best serves you.
Requirement #2: Attract and Convert Customers
Attract and convert enough customers to meet your sales goal, Michalowicz says. He specifies that these have to be the right kind of customers—those who are likely to buy from you and are enjoyable to serve. If you try to increase your customer base by selling to everyone, as many entrepreneurs do, you can hurt your company: You’ll waste time pursuing people who are unlikely to convert, who’ll only buy from you once instead of becoming repeat customers, or who are unpleasant to serve.
To fulfill this requirement, identify the most important traits for your customers to have and only sell to people with those traits (which make them likely to buy from you and enjoyable to serve). The traits may include age, salary, passions, or priorities. After identifying them, adjust your company to cater to your ideal customers and advertise in places they gather.
Requirement #3: Fulfill Your Responsibility to the Customer
Deliver goods or services to customers. Michalowicz says fulfilling your side of the sales agreement is essential, but many entrepreneurs struggle to do so. They focus on making deals without confirming they can actually uphold them. Thus, they promise more than they can deliver, damaging their companies’ reputations and repelling customers.
When making a sales agreement, set expectations you can usually beat, Michalowicz says. When you beat these lower expectations, your customers will be happy. Further, the lower expectations give you flexibility to handle emergencies. For example, as an artist, you’d tell customers that it’ll take a week to finish their commission, instead of the three days you expect it to take. If you run out of paint and it takes a few days to get more, you can still deliver the product on time. Otherwise, you can please your customers by delivering the commission early.
Tier #2: Endure and Prosper Through Profit
The second tier of Michalowicz’s system is helping your business endure and prosper through profit. Michalowicz defines profit as money that can be withdrawn or distributed to shareholders without hurting the company. By completing this tier, you ensure that your business makes enough revenue that you can safely withdraw some of it as a personal reward. This means the company also has enough revenue to grow and safely withstand emergencies.
Requirement #1: Separate Profit From Revenue
Separate profit from revenue before paying the company’s expenses, Michalowicz says. You can do so by allotting a percentage of your revenue to profit and putting it into a separate bank account. This ensures you’re rewarded for running the company, as that money is saved for your personal use regardless of the company’s expenses. This reward then encourages you to keep working hard and helping your business succeed. (This is also the key tenet of another of Michalowicz’s systems for business success: Profit First.)
Requirement #2: Increase Sales
Increase sales margins (the amount of money you earn per sale) and frequency (the number of products you sell). Earning more money per product and selling more products increases revenue, making your company more profitable, sustainable, and prosperous.
Requirement #3: Eliminate Debt
Eliminate your business debt. Michalowicz says being in debt prevents you from achieving financial freedom and increases anxiety, as you’re constantly aware that you owe other people money.
To avoid the problems that come with having debt, use your profit to eliminate your business debt: After separating your profit from revenue as discussed above, use 95% of that profit to pay off your debt and keep 5% as your personal reward.
Tier #3: Increase Stability Through Structure
The third tier of Michalowicz’s system is increasing your company’s stability through structure. Michalowicz defines structure (or order, as he calls it) as delineating and improving your company’s processes so anyone can use them to keep the company running smoothly. By completing this tier, you ensure your company doesn’t rely on any one person for survival. This means your employees can take sick days or vacations without issue, and you can work less.
Requirement #1: Increase Efficiency
Make your processes more efficient. Michalowicz says many companies use inefficient processes simply because they’re familiar, which wastes money and effort. To avoid this pitfall, look for areas in your company where time is wasted or tasks pile up. Then, change those processes to be more efficient, regardless of how familiar or traditional they are.
Often, time is wasted or tasks pile up when only one employee can complete a task. To eliminate these bottlenecks, schedule four-week vacations for your employees, Michalowicz says. Knowing they’ll be leaving forces employees to document their processes clearly and accessibly—that way, their coworkers can assume those responsibilities and continue normal operations in their absence. You can then adjust these processes for the long term, sharing essential employees’ tasks among several people, so the company no longer relies on them solely.
Requirement #2: Capitalize On Employee Experience
Use your employees’ experience to improve your processes, Michalowicz says. Your employees have unique skill sets and backgrounds that help them complete tasks and solve problems. They can use this experience to improve the company’s processes, making it more stable and successful.
To capitalize on employee experience, put them in the right roles. Identify an issue in your company and then evaluate your employees to find one that’s best suited to fix it. Usually, this is an employee who regularly deals with the issue, as they’re more likely to know why it happens and come up with effective solutions. Finally, put that employee in a role where they can fix the issue and adjust the company’s processes to avoid recurrences.
Tier #4: Inspire Loyalty Through Influence
The fourth tier of Michalowicz’s system is inspiring loyalty through influence. Michalowicz defines influence (or impact, as he calls it) as creating positive change for your community. To complete this tier, you must connect your company to a larger mission, which then encourages loyalty in your customers and employees—they see the good you’re doing with your mission and are inspired to support it. Loyal customers are more likely to buy your products and recommend them to others, while loyal employees are more likely to work hard to help your company succeed.
Here, we’ll highlight two requirements in this tier:
Requirement #1: Identify Your Mission
Decide what kind of positive change you’re going to create for your community. This change doesn’t have to be dramatic, Michalowicz says; it’s more important that you and your employees are passionate about the way you’re helping people because that passion lets you persevere through difficult situations. One way to identify your mission is to look at how your company or industry harms your community and work to resolve it. For example, if you run a logging company, your mission might be to provide high-quality products (lumber) while minimizing your harmful effects on the environment.
Requirement #2: Improve People’s Lives
Use your company to improve people’s lives—to give them a transformational experience, as Michalowicz puts it. When you improve employees’ and customers’ lives, they become more loyal because, as discussed above, they’re inspired to help you continue your mission.
To help your employees, first, ask them about their passions and goals. Then, adjust their tasks and schedule to give them the time or money to pursue these passions and goals. As well as being inspired by your mission, your employees will be more likely to work hard and help the company succeed because they’re grateful: They know you made an extra effort to help them, so they’ll be more likely to do the same in return.
Tier #5: Continue The Mission Through Self-Perpetuation
The fifth and final tier of Michalowicz’s system is helping your company continue its mission through self-perpetuation. Michalowicz defines self-perpetuation (or legacy, as he calls it) as your company continuing to have a positive effect on the community after you stop actively participating in it. By completing this tier, you connect the company more firmly to its mission and then disconnect yourself—you make the company an independent entity guided by its mission rather than your personal direction. This lets the company continue improving people’s lives and being successful in the long term, even after you’re no longer involved in its operations.
Requirement #1: Plan For Leadership Changes
Plan how your company will continue its mission after you’re gone. This includes identifying your successors and deciding how the company’s leadership will be structured. It’s important to do this in advance, as unexpected circumstances could force you to leave the company earlier than intended, and your employees will struggle to adapt without a plan in place.
To make this plan, Michalowicz recommends identifying the people who best support your company’s mission and preparing them for a leadership role. Encouraging flexibility is also helpful, so if one employee is promoted to lead the company, the others can take over her responsibilities and keep the company running normally throughout the transition.
Requirement #2: Create a Community
Create a community that appreciates your company’s mission and encourages your company to uphold it when you’re not there to do so. In Tier Four, we discussed how connecting your company to a mission inspires loyalty. In Tier Five, your goal is to encourage that loyalty until your customers will promote your product and protest if your company deviates from its mission. This creates a virtuous cycle: Your community encourages the company to uphold its mission, the company continues to create positive change, and your community remains loyal to the company. In contrast, a less-loyal community will simply stop supporting the company if it doesn’t uphold its mission.
To create a community, develop imagery, narratives, and spaces that are unique to your company and customers, Michalowicz says. These elements separate your company from your competitors, encouraging your customer base to be loyal to you. These elements also provide a connection with your customers, encouraging them to participate in the community.
Requirement #3: Be Adaptable
The company needs to be adaptable to remain successful and continue its mission after you leave. This includes company leadership being willing to change the work processes its employees use or even the company’s business model and industry. Michalowicz says being willing to change lets the company continuously develop better ways to improve people’s lives. In contrast, failing to adapt can put your company out of business.
